Right on schedule: Time to go after those awful “price gougers”

posted at 4:01 pm on November 10, 2012 by Erika Johnsen

When allowed to function properly, the free market works very smoothly in bringing people the goods and services they want, in the amount that they want them, and for the price at which they value them. As much as people don’t like hearing it, the laws of supply and demand are no less vital in the event of an emergency — but politicians sure do love to rag on those greedy, profiteering businesses that jack up their prices in the event of a sudden supply shock or demand spike (a.k.a., “price gouging”). Anti-price gouging laws are a huge mistake that hurt the public at large, because all they accomplish is preventing the free market from doing what it does best: Quickly and efficiently adapting to conditions in a way that benefits everyone, and in an emergency especially, price gouging can save lives.

Predictably, of course, in the wake of Hurricane Sandy, so begins the outrageous outrage against those who had the audacity to raise prices on things like gasoline and lodging, via NBC:

New Jersey has filed lawsuits against eight businesses for allegedly gouging customers with exorbitant prices in the days after Superstorm Sandy roared ashore, the state’s attorney general said Friday.

The defendants, seven gas stations and a hotel, are accused of hiking their prices from 11 to 59 percent in the days after the storm. One gas station was charging as much as $5.50 a gallon, Attorney General Jeffrey S. Chiesa said. The hotel, a Howard Johnson Express in Parsippany, N.J., allegedly raised its room rates to $119 after the storm, up 32 percent from the top rate of $90 just prior to the storm.

“We have received no indication that these defendants faced costs that would have made these excessive price increases necessary or justifiable. One gas station even paid less per gallon for a shipment of fuel after the storm than it had paid before the storm,” Chiesa said in a statement.

“Justifiable”? “Excessive”? “Exorbitant”? Excuse me, but how is it that any government possesses the all-encompassing knowledge to determine what is and is not an “exorbitant” price? Competition is a much more accurate and efficient regulator than any government can ever be, and perhaps if lawmakers and bureaucrats were wise enough to let the market do its thing, their citizens would be better off.

Lee Doren illustrates a great example with bottled water in the video I’ve posted below, so I’ll flesh this out using the example of hotel lodging. Let’s say you live in an apartment with a few friends in a seaside-town, and you know a big hurricane is coming. You also know that your street is prone to serious flooding and your power will probably go out, so you decide to go check into a hotel in a more inland location for a few days. You batten down the hatches and get the hell out of dodge, but when you arrive at the hotel you planned on, you find that the price of rooms is more expensive than you’d banked on. So, you reevaluate: Maybe you and your friends decide to squeeze into one room instead of paying for two, or maybe you think, well, I do have a friend we could crash with who lives even farther inland if we just drive a bit more. So now, you’re taking up zero or one hotel room whereas you might’ve taken two without the hotel’s “price gouging” — meaning there are more rooms available for the people who come along who might really have no other option.

In a nutshell, price gouging incentivizes people to take only what they really need to survive, meaning that a greater amount of people will be able to get the necessary supplies instead of arriving at the store to find rows of empty shelves. What’s more, high prices can incentivize suppliers to bring more of the sought-after goods into the affected areas.

Ever eager to assume that political intervention is superior to market solutions in allocating resources, New Jersey is currently rationing gasoline in certain areas, which isn’t having much effect on mitigating the shortages and the waiting lines. But, as Holman Jenkins writes in the WSJ, maybe we should all hug a price gouger:

Gas stations post the most visible price in the economy, and are target No. 1 for politicians looking for innocent entrepreneurs to scapegoat. One Florida station owner during Katrina told investigators the universal truth of all gas station owners: He raised prices because he had “too many customers” and was running out of fuel. For his honesty and good sense, he was slapped with the state of Florida’s first gouging subpoena.

… In the aftermath of this week’s storm, how long before the Northeast’s refiners and fuel distributors are back in action? Gasoline may well be in short supply for days or weeks. Nothing would be as therapeutic to the public interest as letting retail prices rise to $5 or $6 or whatever might help motorists make better decisions about whether to fill up or not.

Crackdowns on gouging are plausible only because the advantages of not prosecuting price gougers belong to the category of the unseen—the public can’t see the supplies that would be available but for price-gouging laws. A good statewide New Jersey gasoline panic might correct that myopia, at least for a while.


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get the hell out of dodge

Hell* and Dodge** are names of real places. The words should have been capitalized.

Getting Hell out of Dodge may properly refer to removing Hell’s influence from the Kansas town, but you obviously didn’t intend that meaning.

“Words mean things,” as Rush is fond of saying.

*Where those who reject or neglect the free gift of God’s mercy are destroyed.

**A city in, and the county seat of, Ford County, Kansas.

itsnotaboutme on November 12, 2012 at 7:49 AM

…Otherwise, it’s a brilliant post that clearly demonstrates how liberals feel while conservates think.

itsnotaboutme on November 12, 2012 at 7:56 AM

State control of prices works sooooooo well. Just look at how well the state-owned Long Island Power Authority has done in returning power to Long Islanders.

Gouging implies, at least, that some product is available. At this point, cold dark houses have owners at the point where a little electricity price gouging would be a welcome thing.

MTF on November 12, 2012 at 8:13 AM

Before and after hurricane Katrina I know someone who raised the prices of his rooms at his motel.

Why?

Because, instead of a maximum of four or five, you had entire extended families renting ONE room. That he didn’t mind as long as they behaved. But he had to recoup his expenses of extra supplies and the subsequent damages to his property.

He barely broke even after the surcharges were added.

prkw on November 12, 2012 at 9:21 AM

In a nutshell, price gouging incentivizes people to take only what they really need to survive, meaning that a greater amount of people will be able to get the necessary supplies instead of arriving at the store to find rows of empty shelves. What’s more, high prices can incentivize suppliers to bring more of the sought-after goods into the affected areas.

There is a difference between “gouging” and raising prices to offset costs, or increase demand…and that’s the difficulty of a law.

Nothing wrong with raising the price to maybe control the inventory…but when a disaster hits, and you have gas bought at a lower price, and you raise the price just because someone is suffering and has no choice, that’s wrong.

If there was an outbreak hepatitis in the area, so it would be right for the hospitals to double the price of care, or triple the price if you would die if you didn’t get immediate care…gee looks like quadruple for that one. Bet you would holler than.

Can’t travel to another hospital because of the roads…sounds like tripling the cost of hospital care…having a baby, well you have a choice, pay $10,000 cash,or have the baby in the street…bet your “price gouging is good” theory goes out the window.

The fact is, the word is, discernment, actual costs going up because of supply and demand–vs. gouging because you have the people by the throat, and they have no other alternative.

You say all is good…I say one is bad for the nation, for the economy, for society…

right2bright on November 12, 2012 at 10:21 AM

Gouging implies, at least, that some product is available. At this point, cold dark houses have owners at the point where a little electricity price gouging would be a welcome thing.

MTF on November 12, 2012 at 8:13 AM

Because electricity is a “legal” monopoly, you have no other option, it is not set up as a short term “profit/loss”, it’s a long term, with profits built in for these contingencies. They have dozens, of years of mandated services over millions of homes to offset any temp increase in costs.

right2bright on November 12, 2012 at 10:25 AM

When in the middle of a disaster and the supply chain breaks down and the next restock is at an unknown date, prices must go up: there is no longer certainty of supply and re-supply may be a very arduous task. Cost of overhead due to disaster damage is also a part of the cost hike, so that a given reseller can assess the extraordinary damage to get any basic storage components in during a re-supply and begin rebuilding before any insurance agent may be able to get to that place. All of that overhead has cost to it, and the less that is kept in reserve, the higher the cost will be.

When normal infrastructure resumes functioning, and that can be weeks or months away, getting provisional infrastructure in place costs a lot both to bring in and maintain.

All of that is before protection from vermin, storage of perishables and other issues are brought into account.

That is why preparation at home is necessary and if you can arrange a back-up point with a friend or somewhat distant storage facility, that is wise, as well. Survival means preparations, those things you did long before the disaster will then determine your ability to survive a disaster.

As we have seen the time delta from normal infrastructure to the return of the Gods of the Copybook Headings can now be determined: 96 hours. That time for the most civilized of neighborhoods to begin seeing looting is that time delta. Too bad Mayor Bloomberg didn’t want those nice National Guardsmen to show up with guns to enforce order… and thus disorder you shall have. Disarming the populace is just sheer insanity and is asking for people to be killed once the infrastructure goes out. Any who were armed and were disarmed as civilians with no criminal background who have died… their blood are on the hands of those who put such laws in place.

ajacksonian on November 12, 2012 at 10:33 AM

Sounds great in theory. Just like socialism sounds great in theory to the libs. But allow gouging and what you will have are burning buildings, looting, and Thunderdome-style battles to the death over needed essentials. Also people won’t buy what they need, people who have means will buy everything they can while people without means watch. And get pissed. And start to think about going on a rampage.

This is why we keep losing elections, and why we are successfully painted as cold-hearted and uncaring. Let’s explaint this theory to voters, ahve the libs say we are uncaring and for businessess profiteering at the expense of the little guy, and see who gets reamed.

Even if it makes sense in theory, it’s a dumb idea politically. Got to pick your battles sometimes. IMHO.

RW Wacko on November 12, 2012 at 10:37 AM

If prices are “excessive” people don’t buy the product.

hawksruleva on November 12, 2012 at 10:44 AM

If prices are “excessive” people don’t buy the product.

hawksruleva on November 12, 2012 at 10:44 AM

Well, yeah…so finish your thought…they can’t afford “blood” so they die, or they can’t afford caviar so they settle for pate?

right2bright on November 12, 2012 at 10:48 AM

This is why we keep losing elections, and why we are successfully painted as cold-hearted and uncaring. Let’s explaint this theory to voters, ahve the libs say we are uncaring and for businessess profiteering at the expense of the little guy, and see who gets reamed.

Even if it makes sense in theory, it’s a dumb idea politically. Got to pick your battles sometimes. IMHO.

RW Wacko on November 12, 2012 at 10:37 AM

It depends on how you get your message out. We support allowing businesses the freedom to make decisions. And we trust people to make good decisions. The commercial for this could be simple: Show a 1-gallon gas can and say, “how much should this cost?” Then ask “What if it was the last gallon of gas in your city?”.

Price hikes mean people don’t hoard. If you keep gas prices artificially low, people are more likely to buy up gas to power their cars and generators, as opposed to buying just what they need right now.

hawksruleva on November 12, 2012 at 10:48 AM

More and more Americans are economic illiterates who think that the Government is smarter than the rest of us. This article is spot on, of course, but Leftists, who rapidly are becoming the majority, would rather have the Government tell us all what to do, what to charge for our goods and services, and what to think. Price “gouging” saves lives but you will never succeed in explaining that to the majority of fools.

Rogervzv on November 12, 2012 at 10:54 AM

Well, yeah…so finish your thought…they can’t afford “blood” so they die, or they can’t afford caviar so they settle for pate?

right2bright on November 12, 2012 at 10:48 AM

Who said anything about what they could afford? Excessive means the price is so high that people refuse to pay it. I can AFFORD gum at $10 a pack. But I won’t buy it, because that price is excessive.

In the aftermath of Sandy, people are fighting for gas. When they get to the pumps, many people are filling containers of gas, to make sure they get as much as possible, fearing it will run out.

If the price was higher, they’d buy less, and the danger of the gas station running out would be much lower.

hawksruleva on November 12, 2012 at 10:54 AM

Price “gouging” saves lives but you will never succeed in explaining that to the majority of fools.

Rogervzv on November 12, 2012 at 10:54 AM

I think you could succeed in that. It helps that the truth is what actually happens in peoples’ lives. So they’re familiar with it. The problem is that we don’t make things simple for people.

The video on this page presents the case pretty plainly. But it could be even simpler. Show a shelf with 1 water bottle. The guy in front of you buys it, leaving you without. Ask “where did all the water go?” Show people carrying out carts full of water. Then say “because government did not allow prices to rise, people hoarded the water, and there was none left for you. And because of government intervention, business couldn’t afford to deliver more water to the storm-ravaged area.”

Or even better – “What would a thirsty man rather have? A $10 bottle of water, or $10 and no water?”

hawksruleva on November 12, 2012 at 11:00 AM

I was cold and in the dark without internet and calling a roofer to fix my roof, when my cell phone wasn’t cutting out.

I considered myself lucky that my family and I were safe and I had a house and found a gas station with gas.

Elisa on November 11, 2012 at 8:35 PM

Barbaric!

tom on November 12, 2012 at 11:28 AM

Sounds great in theory. Just like socialism sounds great in theory to the libs. But allow gouging and what you will have are burning buildings, looting, and Thunderdome-style battles to the death over needed essentials. Also people won’t buy what they need, people who have means will buy everything they can while people without means watch. And get pissed. And start to think about going on a rampage.

RW Wacko on November 12, 2012 at 10:37 AM

That is completely backward. When you outlaw “gouging” is when you find the situation above. Not only are there less resources, but the people who really need the resources fast can’t because they have to wait in line with everyone else.

Count to 10 on November 12, 2012 at 12:19 PM

when a disaster hits, and you have gas bought at a lower price, and you raise the price just because someone is suffering and has no choice, that’s wrong.

right2bright on November 12, 2012 at 10:21 AM

Right, sell all you have in a day, with your 1% markup and make $1,000.

Then have no gas, no business, and shut down for a month until supplies come back.

Then pay your $2,500 rent for the month and your utilities and damages from the storm with the $1,000 you made.

Only people willing to lose money should be allowed in business. Charging a price to cover restocking is wrong.

gekkobear on November 12, 2012 at 1:01 PM

I was cold and in the dark without internet and calling a roofer to fix my roof, when my cell phone wasn’t cutting out.

I considered myself lucky that my family and I were safe and I had a house and found a gas station with gas.

Elisa on November 11, 2012 at 8:35 PM

Barbaric!

tom on November 12, 2012 at 11:28 AM

More seriously, after Katrina hit, I really missed my intranet while waiting for power to be restored.

But most of us lost cell phone service entirely, except for customers of one company.

Rationing can be rational in an emergency, such as when gas is hard to get and people want to fill up both cars and three or four gas tanks. We spent in some cases 7 hours in line to get gas. We would not have been happy if they had sold all their gas to the first 50 customers because it was easier.

The problem is not that emergencies may not justify extraordinary measures. The problem is that “price gouging” is a populist term just waiting for a demagogue to seize, and so it gets applied to any rise in prices at all. Which is insane, since prices should rise right after an emergency when temporary shortages are encountered, but any attempt by a business to raise prices to recoup their extra expenses is at risk of having them denounced and indicted for price gouging.

The government should only get involved when price hikes lead to dangerous situations where life or health is at stake. Which could be as simple as water not being available for extended times. But price hikes for a lot of goods tends to help prevent shortages, and gives people an extra incentive to go to extraordinary measures to get that profit.

If it’s truly an emergency, is it really unreasonable for water to be twice as expensive? At that point, if it costs twice as much for a business to obtain water to sell, then it’s a good thing that they were able to get lifesaving water at only double the price as opposed to not getting water at all.

Supply and demand gets very interesting after an emergency. It might actually make sense for the government to obtain limited and strictly rationed cheap water for the desperate, while allowing the price of extra water — as in, above the rationed amount — to float.

tom on November 12, 2012 at 1:17 PM

Again, why did you mention hoarding in comparison to price gouging?

blink on November 11, 2012 at 10:00 AM

Because at least one state law on price gouging has a component that prevents retailers from stockpiling.

lexhamfox on November 11, 2012 at 11:57 AM

That has nothing to do with consumer hoarding. Why do you continue to ignore the issue of hoarding?

Is it because you’re a hoarder yourself? At the first mention of bad weather do you run down to the stores and begin buying things that you don’t really need “just in case”? Do you buy the shelves empty and leave nothing for people that really have need?

Do you buy 8 batteries instead of just the 4 that you need?

Are you a disgusting person? This is much worse than price gouging, and your bias implies that you lean this way.

blink on November 12, 2012 at 8:03 AM

You asked me why I ‘mentioned hoarding’ and then accused me of ignoring it Blink.

Hoarding hasn’t been an issue in the disasters I have experienced (earthquake, forest fire, war) as people had very little time to prepare, but I have been in places where there was a run on certain products (cash, rice, fuel) and in those cases retailers ration on their own or the authorities mandate it. There was no declared emergency so retailers (in the case of fuel and rice) jacked up prices but most retailers still rationed how much an individual could purchase. I’m not a hoarder myself but I keep a drum with a few days supply of food, water, candles, batteries, etc… Is that OK with you Blink?

My uncle has a water truck in a somewhat remote area in the Rockies. One year they had bad fires and we went and helped out. According to you he would have helped the supply chain by gouging his neighbors and making the most of a captive and terrified market in an emergency situation, right? Well in that situation none of your free market purity would have helped the situation in that place and time. By the time markets could effectively react, the demand/need for those goods and services would be gone. These laws we are discussing are limited in scope cover situations that are extreme and temporary. Economic principles which would normally be sound simply can’t address the imbalances fast enough to be effective which is why these laws exist in the first place.

lexhamfox on November 12, 2012 at 1:35 PM

If price gouging was considered acceptable, then would-be suppliers would most certainly have an incentive to push extra supplies into areas where they are most needed. But why should Johnny Distributor in Cleveland bother working the weekend to ship extra supplies to New York City if he can’t make any extra money doing so? The orders will still be there on Monday. And why should anyone try to preempt Johnny Distributor by filling orders faster than him at a higher price?

The laws allow retailers to pass on additional costs involved with getting the goods to market. Johnny Distributor in Cleveland can charge whatever he likes and so can Mac the truck driver. The retailer can add the additional costs to his pricing without violating the laws.

Your personal attack on my imaginary hoarding is amusing and also without any merit.

lexhamfox on November 12, 2012 at 5:16 PM

Again, why did you mention hoarding in comparison to price gouging?

blink on November 11, 2012 at 10:00 AM

I should have read your mind instead of what you wrote. Silly me. I mentioned stockpiling in a my original comment, hence my written response.

lexhamfox on November 12, 2012 at 5:22 PM

Anti-Gouging laws do not inhibit retailers passing on additional costs to customers. I gave you examples on how hoarding can be restricted.

I brought up stockpiling because there is at least one state where anti-gouging laws also feature restrictions on stockpiling which I found odd and counterproductive.

I’m not defending hoarders. I am defending anti-gouging laws.

Your personal attacks on me say more about you and your failed arguments than they do about me.

lexhamfox on November 12, 2012 at 7:15 PM

I had a nice long post about how a government enforces anti gouging can be a real damper on retailers willingness to put themselves essentially at risk of prosecution with all the attendent costs, uncompensated, of defending themselves all inspite of any leeway in any anti gouging law, but the automatic/forced refresh of something wiped it out utterly.

Anyway.

Given prosecutorial discretion, any retailer even with solid evidence justifying most, nearly all, or all of their higher prices, the threat is just too much since few would accept a line item, “Documentation and potential Defense costs against charges of gouging” as an acceptable increment to a retailer’s price gouging. So the transactions (retailing) are forgone because the potential for prosecution raises the transaction costs for the retailer to unacceptable levels.

Russ808 on November 13, 2012 at 1:19 PM

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